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June 2016

Ten Current-Situation Questions for Brad DeLong

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(1) Recession Chances?: The chances of recession are smmall, but not very small. Robert Solow likes to quote Damon Runyon that nothing between humans is more than 3 to 1. We have a very hard time imagining how fat the tails are--and so even when things look clear there are always dangers surprisingly close

That said, expansions do not die of natural causes. It is true that the unwinding of malinvestment balances is a fraught moment. But we climbed down from the dot-com bubble successfully. And we almost climbed down from the housing bubble successfully—I confess that even in July 2008 I thought we were going to make it. And so I think, today, that we are going to make it without a recession in our near future. (Britain and Texas, on the other hand...)

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Procrastinating on June 26, 2016

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Over at Equitable Growth: Must-Reads:

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Weekend Reading: J. Bradford DeLong (2012): This Time, It Is Not Different: The Persistent Concerns of Financial Macroeconomics

This Time, It Is Not Different: The Persistent Concerns of Financial Macroeconomics

ABSTRACT: When the Financial Times's Martin Wolf asked former U.S. Treasury Secretary Lawrence Summers what in economics had proved useful in understanding the financial crisis and the recession, Summers answered: “There is a lot about the recent financial crisis in Bagehot...”. “Bagehot” here is Walter Bagehot’s 1873 book, Lombard Street.

How is it that a book written 150 years ago is still state-of-the-art in economists’ analysis of episodes like the one that we hope is just about to end? There are three reasons:

  1. The first is that modern academic economics has long possessed drives toward analyzing empirical issues that can be successfully treated statistically and theoretical issues that can be successfully modeled on the foundation of individual rationality. But those drives are disabilities in analyzing episodes like major financial crises that come too rarely for statistical tools to have much bite, and for which a major ex post question asked of wealth holders and their portfolios is: “just what were they thinking?”.

  2. The second is that even though the causes of financial collapses like the one we saw in 2007-9 are diverse, the transmission mechanism in the form of the flight to liquidity and/or safety in asset holdings and the consequences for the real economy in the freezing-up of the spending flow and its implications have always been very similar since at least the first proper industrial business cycle in 1825. Thus a nineteenth-century author like Walter Bagehot is in no wise at a disadvantage in analyzing the downward financial spiral.

  3. The third is that the proposed cures for current financial crises still bear a remarkable family resemblance to those proposed by Walter Bagehot. And so he is remarkably close to the best we can do, even today.

Continue reading "Weekend Reading: J. Bradford DeLong (2012): This Time, It Is Not Different: The Persistent Concerns of Financial Macroeconomics" »


Weekend Reading: Cory Doctorow: How to Protect the Future Web from Its Founders' Own Frailty

Cory Doctorow: How to Protect the Future Web from Its Founders' Own Frailty:

So, as you might imagine, I'm here to talk to you about dieting advice. If you ever want to go on a diet, the first thing you should really do is throw away all your Oreos.

It's not that you don't want to lose weight when you raid your Oreo stash in the middle of the night. It's just that the net present value of tomorrow's weight loss is hyperbolically discounted in favor of the carbohydrate rush of tonight's Oreos. If you're serious about not eating a bag of Oreos your best bet is to not have a bag of Oreos to eat. Not because you're weak willed. Because you're a grown up. And once you become a grown up, you start to understand that there will be tired and desperate moments in your future and the most strong-willed thing you can do is use the willpower that you have now when you're strong, at your best moment, to be the best that you can be later when you're at your weakest moment.

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Manu Saadia on Trekonomics at Books Inc. in Berkeley :: June 15, 2016

Star trek sarek live long and prosper Google Search

Manu Saadia: Trekonomics: The Economics of Star Trek http://amzn.to/28ZnBiD

Live from the Gamma Quadrant: Books Inc.: Trekonomics: The Economics of Star Trek: "Manu Saadia discusses Trekonomics: The Economics of Star Trek...

...What would the world look like if everybody had everything they wanted or needed? Delving deep into the details and intricacies of 24th century society, Trekonomics explores post-scarcity and whether we, as humans, are equipped for it. What are the prospects of automation and artificial intelligence? Is there really no money in Star Trek? Is Trekonomics at all possible? Manu will be in conversation with UC Berkeley economics professor Brad DeLong.


Rough Semi-Transcript:

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In Which I Call for Academic Scribblers and Funct Economists to Enter into Utopian Frenzy with Respect to the Institutional Design of the Eurozone

Long Term Government Bond Yields 10 year Main Including Benchmark for Germany© FRED St Louis Fed

Must-Read: From my perspective, this piece at Vox.eu makes many too many bows to conventional-wisdom idols with not just feet but bodies and heads of clay. Thus I cannot sign on to it.

Eleven observations:

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Underappreciated Weblogger of the Month: A Baker's Dozen from Richard Mayhew

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Another in my series of webloggers who I think are underappreciated--of people who, by accidents of chance and historical contingency, are just as smart (or more) and are as (or more) worth reading as I am. Richard Mayhew of Balloon Juice is doing some of the very most interesting blogging-from-the-trenches of our health care financing system.

Here's a baker's dozen of worthwhile reads:

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Liveblogging World War I: June 27, 1916: The Somme

Winston Churchill: The World Crisis:

Colonel Boraston’s account is studiously vague as to the objectives sought for by his chief on July 1. The plan of the British and French was admittedly to pierce the whole German trench system on a front of many kilometres, and then by wheeling outwards—the British to the north-east and north and the French to the south-east—to roll up from the flanks the exposed portions of the German line; and British and French cavalry divisions were held ready to be pushed forward through the gap so made. The French objective was to gain the rising ground east of the Somme south of Péronne, while ‘the corresponding British objective’ was ‘the semicircle of high ground running from the neighbourhood of Le Transloy through Bapaume to Achiet-le-Grand.’ But these objectives, says Colonel Boraston, were not expected to be reached in the first assault:

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Liveblogging World War I: June 25, 1916: The Somme

Winston Churchill: The World Crisis:

The military conceptions underlying the scheme of attack were characterized by simplicity. The policy of the French and British Commanders had selected as the point for their offensive what was undoubtedly the strongest and most perfectly defended position in the world... writes Sir Douglas Haig:

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Live from the Little England of the Black Shorts: James Ball et al.:: Stock Market Loses Billions As Banks And Housebuilders Suffer Hardest: "Stock markets around the world collapsed and the pound plunged on news that Britain’s electorate...

...had emphatically voted to leave the European Union in Thursday’s referendum.Banks including Lloyds, Barclays, and Royal Bank of Scotland all saw around a fifth of their value wiped out on Friday, and there were similar losses at housebuilders like Taylor Wimpey, Barratt, and Berkeley Group. Holiday and airline firms, including British Airways parent IAG, Thomas Cook, and easyJet, also suffered.... The freefall was slowed by Bank of England governor Mark Carney promising to invest an extra £250 billion to steady markets if needed and adding that any further action needed would be taken. This could mean a change to interest rates....

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Weekend Reading: Martin Luther King, Jr. (1965): Address at the Conclusion of the Selma to Montgomery March

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Martin Luther King, Jr. (1965): Address at the Conclusion of the Selma to Montgomery March**:

"If it may be said of the slavery era that the white man took the world and gave the Negro Jesus, then it may be said of the Reconstruction era that the southern aristocracy took the world and gave the poor white man Jim Crow. (Yes, sir) He gave him Jim Crow. (Uh huh) And when his wrinkled stomach cried out for the food that his empty pockets could not provide, (Yes, sir) he ate Jim Crow, a psychological bird that told him that no matter how bad off he was, at least he was a white man, better than the black man. (Right sir) And he ate Jim Crow. (Uh huh) And when his undernourished children cried out for the necessities that his low wages could not provide, he showed them the Jim Crow signs on the buses and in the stores, on the streets and in the public buildings. (Yes, sir) And his children, too, learned to feed upon Jim Crow, (Speak) their last outpost of psychological oblivion. (Yes, sir) Thus, the threat of the free exercise of the ballot by the Negro and the white masses alike (Uh huh) resulted in the establishment of a segregated society. They segregated southern money from the poor whites; they segregated southern mores from the rich whites; (Yes, sir) they segregated southern churches from Christianity (Yes, sir); they segregated southern minds from honest thinking; (Yes, sir) and they segregated the Negro from everything. (Yes, sir)..."

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Weekend Reading: John Maynard Keynes (1925): Am I a Liberal?

John Maynard Keynes (1925): Am I a Liberal?: "If one is born a political animal, it is most uncomfortable...

...not to belong to a party; cold and lonely and futile it is. If your party is strong, and its programme and its philosophy sympathetic, satisfying the gregarious, practical, and intellectual instincts all at the same time, how very agreeable that must be!—worth a large subscription and all one's spare time;—that is, if you are a political animal. So the political animal who cannot bring himself to utter the contemptible words, "I am no party man," would almost rather belong to any party than to none. If he cannot find a home by the principle of attraction, he must find one by the principle of repulsion and go to those whom he dislikes least, rather than stay out in the cold.

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Comment of the DaySkahammer: I think the game changed with the election of Obama: "I resisted this conclusion through his first term because it seemed so reductive...

...But his second term has convinced me that the Republican electorate just won't tolerate any compromise with an Executive Branch headed by a black man. That's what the congressional GOP's do-nothing policy is based on: Fear that their constituents will punish them for appearing to give a black man the ultimate upper hand on them. That's why the govt was shut down, why the ACA was targeted fifty-odd times by attempts at defunding, why the currently operating 'budget framework' doesn't include an actual budget bill being submitted with the usual fanfare for the president's signature.

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Weekend Reading: From John Maynard Keynes (1919): The Economic Consequences of the Peace

John Maynard Keynes (1919) The Economic Consequences of the Peace http://amzn.to/28SXgy3

Very few of us realize with conviction the intensely unusual, unstable, complicated, unreliable, temporary nature of the economic organization by which Western Europe has lived for the last half century. We assume some of the most peculiar and temporary of our late advantages as natural, permanent, and to be depended on, and we lay our plans accordingly. On this sandy and false foundation we scheme for social improvement and dress our political platforms, pursue our animosities and particular ambitions, and feel ourselves with enough margin in hand to foster, not assuage, civil conflict in the European family.

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Procrastinating: Special Brexit Reading Edition

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Over at Equitable Growth: Must-Reads:

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Must-Read: I disagree with Paul Krugman: not "Brexit just brings to a head an abscess that would have burst fairly soon in any case..." but rather: Brexit evolves antibiotic-resistant bacteria and brings to a head an abscess that would probably have drained itself gradually--and could still have been treated...

Paul Krugman: Brexit: The Morning After: "A number of people deserve vast condemnation here, from David Cameron...

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Must-Read: The very sharp Martin Wolf sees structural recession in Britain's near future.

People minimizing risk are going to leave Britain. People who would otherwise locate in Britain and are risk-shy are going to pause and wait and see. The Bank of England needs to drop the value of the pound by enough to try to maintain full employment in Britain--but not by so much as to make investors feel that investments in Britain are unsafe and so lose the pound its exorbitant privilege.

As Keynes wrote at the beginning of his Tract on Monetary Reform back in 1923:

I dedicate this book, humbly and without permission, to the Governors and Court of the Bank of England, who now and for the future has a much more difficult and anxious task entrusted to them than in former days...

Martin Wolf: Brexit: David Cameron, the Ex-Prime Minister, Took a Huge Gamble and Lost: "The fearmongering of Boris Johnson, Michael Gove, Nigel Farage, The Sun and the Daily Mail has won...

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Procrastinating on June 24, 2016

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Over at Equitable Growth: Must-Reads:

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Uncertainty at the Federal Reserve: No Longer So Live at Project Syndicate:

No Longer so Live at Project Syndicate: I find myself increasingly believing that the side of the scale that says the Federal Reserve is in the process of losing its credibility is the heavier. And this past week added another weight to that side of the scale. Over at Bloomberg View the very sharp Narayana Kocherlakota, former President of the Federal Reserve Bank of Minneapolis, writes:

Narayana Kocherlakota: Ending an Unhealthy Obsession With the Fed: "The obsession with the Fed...

...Outsiders are seeking clues to the central bank’s broader goals.... The Fed’s stated aim... [is] inflation at 2 percent... but its actions send a different signal... [they] removed stimulus... even as inflation and inflation expectations have slipped downward... [their] economic projections... suggest that they don’t see getting inflation back up to target quickly as a primary determinant of monetary policy.... The Fed is balancing the pursuit of its inflation target with other objectives... [that they fear] low interest rates are causing risks and distortions... [that they] don’t want the unemployment rate to fall to an unsustainably low level... [that] raising rates at every meeting... could be too much of a shock.... It’s hard to know which objectives will dominate policy in the longer run. Hence, markets are parsing the June decision for whatever information they can get. This kind of uncertainty... is not healthy...

Narayana is correct. But I think he leaves unstated a good deal of the problem, for we face more than simply uncertainty about Federal Reserve policy objectives.

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Liveblogging World War I: June 24, 1916: The Somme

The History Place: World War I Timeline - 1916:

The Allies begin a week-long artillery bombardment of German defensive positions on the Somme River in northern France, in preparation for a major British-led offensive. Over 1.5 million shells are fired along a 15-mile front to pulverize the intricate German trench system and to blow apart rows of barbed wire protecting the trenches. British Commander Douglas Haig believes this will allow an unhindered infantry advance and a rapid breakthrough of the German Front on the first day of battle.


Must-Read: One of the forms racism takes in America today is the belief that whenever anything goes wrong it must have given money away to poor, shiftless Black people. Today this song is being reprised by--who else?--Larry Kudlow and Steven Moore.

The very sharp Barry Ritholtz does the intellectual garbage cleanup:

Barry Ritholtz: [Lending to Poor People Didn't Cause the Financial Crisis]http://equitablegrowth.org/?p=27453): "Lawrence Kudlow and Stephen Moore have revived an idea... that really should have been put to rest long ago...

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Procrastinating on June 23, 2016

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Over at Equitable Growth: Must-Reads:

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Live from America's Better Self: This is, I think, unfair. Mitt Romney's counterparties were very happy with his work--it was only the other stakeholders (and the government, where the PBGC often had to spend money to clean up the mess) who was unhappy. But if you were a Donald Trump counterparty thinking he was working for or with you, odds are that you are unhappy as well:

Matthew Yglesias: Clinton’s New Line on Trump’s Business Career: "Today Hillary Clinton’s campaign is going to roll out its first attack on Donald Trump over the economy...

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Liveblogging World War I: June 23, 1916: Not Quiet on the Western Front

The History Place: World War I Timeline:

Germans resume their offensive near Verdun, targeting Fort Souville which overlooks the city and the Meuse bridges. Using poisonous phosgene gas at the start of the attack, they initially take the village of Fleury just two miles north of Verdun, but further advance southward is halted by a strong French counter-attack. Verdun has now become a battle of attrition for both sides with a death toll already approaching 500,000 men.


(Late) Monday Smackdown: Jonathan Chait Takes Care of Jonathan Rauch

Over the past two decades, my opinion of the intelligence, sophistication, and desire to be a trustworthy information intermediary of Jonathan Chait has gone up. Jonathan Rauch--not so much. The vibe I get is one of a profound unwillingness to tell too much truth to the right-wing half of his desired audience, and thus the constant provision of false-equivalence cover to bad actors. This pattern continues today:

Jonathan Chait: Why American Politics Really Went Insane -- NYMag: "Jonathan Rauch.... Rather than the presidential system, or the Republicans, Rauch instead blames the demise of what he calls the ‘informal constitution’...

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Donald Trump sources $6M worth of campaign expenditures from companies he and his family own / Boing Boing

Live from the Republicans' Self-Made Gehenna: Cory Doctorow: Donald Trump Sources $6M of Campaign Expenditures from Companies He and His Family Own: "Michael Bloomberg and Steve Forbes... firewall their own companies off from their campaigns...

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Must-Read: As I was just saying yesterday: Take the rate of profit--typically 6% to 7% per year--on the operating companies that make up the stock market. Subtract the risk premium--typically 4%. Add on the expected inflation rate--2.5% on the CPI basis. Get 4.5% to 5.5%. That is what the nominal interest rate on Treasury bills is likely to be in normal times toward the end of a healthy expansion. That provides a healthy amount of room for the Federal Reserve to cut interest rates to encourage spending and support the economy when a recession comes. But note that 5% of sea-room to cut interest rates when necessary was not nearly enough back in 2007-2010.

Now suppose that we are entering an age of secular stagnation. It will have a higher risk premium--say 5-6%. Slower growth will have an impact on the rate of profit for operating companies--knock, say, 1-2% off their typical value. Go through the math, and we get a likely nominal interest rate on Treasury in normal times toward the end of a healthy expansion of roughly 1-3%, not 5%.

The dot-plots tell us that the FOMC now thinks that it is headed for a 3% Treasury Bill rate--at the upper end of this range, but still very far from a 5% rate. And if we do live in a semi-permanent age of secular stagnation, this will not be a temporary inconvenience but, rather, a permanent structural fact.

That means that if the FOMC keeps its current inflation target then it will have only 3% of sea-room when the next big recession comes, whether next year, next decade, or a quarter century from now.

That means that if the FOMC keeps attempting to raise interest rates back to a 5% normal--or even, unless it is lucky, to a 3% normal--it will find itself continually undershooting its inflation target, and continually promising that rates will go up more real soon now as soon as the current idiosyncratic fit of sub-2% inflation passes.

I do not know anybody seriously thinking about all this who thinks that 3% of sea-room is sufficient in a world in which shocks as big as 2007-2010 are a thing. And I do not know anybody seriously thinking about all this who thinks that pressing for a premature "normalization" of interest rates is a good idea: It will deanchor inflationary expectations on the downside, and with rational market inflation expectations 1-2% below the "target" that means an equilibrium late-expansion Treasury Bill rate of not 1 to 3% but rather -1 to 2%.

Therefore either (a) the Federal Reserve really should raise its inflation target, or (b) the Federal Reserve should right now be screaming to high heaven about how it is the necessary and proper task of the rest of the government to do something, something big, something now to resolve our secular stagnation problem. And under no circumstances should the Fed be (c) pushing for probably premature "normalization" of interest rates.

Of course, the Fed could and should be doing both (a) and (b). But it seems to be doing neither--it seems to be doing (c).

Perhaps Janet's thoughts on secular stagnation are part of process of trying to assemble an FOMC coalition to... do something... or at least beg others to do something...

But this intellect, at least, is pretty pessimistc.

A Question For the Fed The New York Times

Paul Krugman: A Question For the Fed: "There is a near-consensus at the FOMC that rates must eventually move up...

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Must-Read: I want to play the bipartisan-technocrat policy game.

The old conventional wisdom was that playing that game was productive and fun. You see, members of the Senate and the House. Thus, and so the two houses--everybody in them--shared the goal of trying to arrange things so that they each looked good to their local constituents. And good technocratic policies were an effective move in that win-win--or mostly win-win--game.

But now? The political-economy and political-structural questions are:

  1. Has this changed--is the game now to make the president of the other party look bad?
  2. Did the game change with the Democrats under Richard Nixon--who was genuinely bad--and have Republicans just been playing tit-for-tat since?
  3. Did the game change with the accession of Newt Gingrich--and his strange and false belief that he would have a better and longer career as a partisan bomb thrower than as a statesman?
  4. Did the game change with George W. Bush--and his decision that Democratic members of the House and Senate who supported him on policy would not be cut any campaign fund-allocation breaks at election time?
  5. Did the game change with the election of a Black man?

And how do we get back--if we can get back? And do we want to get back?

These are all the questions that I wish political scientists were trying to answer for me. Yet few are--save Tom Mann, Norm Ornstein, Rick Perlstein, and a very few others...

Nancy LeTourneau: What Happens When One Party Doesn’t Care About Governing?: "Over the course of the Obama presidency, we’ve watched as Republicans have thrown out many of the norms...

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Procrastinating on June 22, 1941

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Over at Equitable Growth: Must-Reads:

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Must-Read: Very flattering...

I must say: I don't know how one would teach Econ 1 other than organizing it around the principles of (a) market success and (b) types of market failure...

Paul F Taylor: Teaching Economics:


Marx's Half-Baked Crisis Theory and His Theories of Surplus Value, Chapter 17: Hoisted from the Archives from Five Years Ago

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Hoisted from the Archives:: Marx's Half-Baked Crisis Theory and His Theories of Surplus Value, Chapter 17: I went back through Marx's Theories of Surplus Value, chapter 17, to try to figure out if anything could be rescued from it. It seems to me that Marx has two and only two major points to make in a long, uneven, and very discursive chapter.

  1. The first is John Stuart Mill's point: a general glut of commodities is the same thing as an excess demand for money, and that is not only possible that that is something we see—Marx is, however, strangely unwilling to credit Mill or anybody other than himself for this point.

  2. Marx's second major point is that the balanced capitalist-growth at full employment is impossible. The workings of the processes of accumulation and surplus value extraction forbid it. Because capitalists extract surplus only to reinvest it and because larger capitals extract more surplus, as a boom continues consumption must fall as a share of full-employment output. Thus the investment share of output must rise. Capitalists must be not just confident that the boom that will continue, but increasingly confident as time passes that the boom will continue faster.

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Liveblogging World War I: June 22, 1916:

The History Place: World War I Timeline - 1916 - The Blood Letting

Germans resume their offensive near Verdun, targeting Fort Souville which overlooks the city and the Meuse bridges. Using poisonous phosgene gas at the start of the attack, they initially take the village of Fleury just two miles north of Verdun, but further advance southward is halted by a strong French counter-attack. Verdun has now become a battle of attrition for both sides with a death toll already approaching 500,000 men.